Vanguard High Dividend Yield ETF

VYM is a solid large cap value ETF.

VYM is a good large cap value stock ETF.

Our top investment, in dollars (approximately $212,000), is an ETF with the ticker symbol VYM. VYM is a great retirement income solution, but it should not be your only investment. Just because some investment is number one doesn’t make it a complete answer to your investing needs. Because this is the only ETF in our top ten, I will take a slightly different approach to talking about it. The estimated annualized dividend income we will receive in 2021 is almost $6,000.

VYM Portfolio Statistics

VYM currently sports a dividend yield of 2.9%. The following image from my AAII membership shows it is a “Socially Responsible Fund.” The goal is high dividend yield with a very rational expense ratio of 0.06%. Anything less than 0.10% is a “good” start.

Portfolio Statistics from AAII

NAV Total Returns

Don’t buy shares of VYM if you are looking for tremendous growth. Having said that, VYM does provide diversification and actually performs quite well. If you can make 11-12% per year, you have a good investment. Recently VYM has underperformed against “Large Value” stocks, but that is a short-term view.

Total Returns

Portfolio Composition

VYM offers some diversification (400+) holdings, but there is a risk factor. About 25% of the assets are in ten companies. I do like the fact that most of the investments are domestic stocks. This image was captured from the AAII website.

AAII VYM composition

TOP TEN Holdings and Risks

I like all of the investments in the top ten. Of course, XOM and T are not likely to out-perform the market. I recently sold most of our AT&T (T) stock, as VYM provides sufficient exposure to this investment. We also own shares in JNJ, HD, VZ, and INTC. Why does that matter? Because you want to be careful about your allocations and that includes both your stocks and your ETFs or mutual funds.


Holdings Breakdown by Sectors

Sectors can make or break your investment results. I personally like financials, health care, industrials, technology, and real estate. I buy individual stocks in all of these sectors. However, I think VYM is too light in the Real Estate sector, so I invest more aggressively using individual stocks. If you don’t want to do that, buy a REIT ETF like VNQ (Vanguard Real Estate ETF) in addition to owning VYM.

Sectors weightings can impact performance for the better or for the worse.

ETF Trades from Seeking Alpha

As you can see from this Seeking Alpha screenshot, VYM is not currently a momentum darling. However, Cindie and I also own shares of DVY and SCHD. This adds diversification and more of a growth factor to our overall investments. The expense ratio for DVY is a bit high, but that is OK. We also own shares of ETF DGRO. All of the related funds are worth considering. I just happen to prefer VYM.

My picks: VYM, DVY and SCHD.


Our ETF Holdings from iPhone App Dividend Tracker

Finally, VYM is not our only ETF. We also own shares of SPAXX and FDRXX. These mutual funds hold our cash until I see an investment I want to buy. I also invest in SCHD, VCLT, PFF, PFFD, DGRO, and ILTB. Our stock holdings still far outweigh our ETF holdings, but I am gradually shifting more of our assets to ETFs for ease of portfolio management.

The Dividend Tracker iPhone app makes visualizing allocations and dividends so much easier.

Conclusion: What another author suggests…

Dividends, with dividend growth, a low expense ratio, and good diversification make VYM a sensible anchor ETF for our portfolio.

As one Seeking Alpha author said, “The 0.06% low cost and the 2.68% dividend yield are major draws for many investors who favor VYM. To put things in perspective, the current yield of the overall market (represented by S&P 500) is 1.36%, and that of the 10-year treasury bond is 1.56%. So VYM provides almost more than 2x yield compared to the overall market or treasury bond. Combined with the fact that VYM holds all US stocks and no foreign stocks, the dividends are subject to a lower tax bracket than normal income for most of the investors.” (LINK)

Risk is still risk, but VYM has some advantages. This same author goes on to say, “To recap, the under the hood examination above illustrates that there are both advantages and limitations of VYM. The advantages included its convenience, low cost, liquidity, and the high dividend yield. The limitations are its generically top-heavy indexing method, deviation from the actual economy composition, potential performance lag, and potential volatility which are on par with the overall market (or slightly larger).” (LINK)

Possible approaches to fine-tune VYM

This same author has some good advice: “With a good understanding of these limitations, there are several possible approaches that you could apply to fine-tune the use of VYM to better align with your risk tolerance and long-term investment goals. For example, you could use it in combination with other sector funds to bring its composition to be more aligned with the overall market. Notably, because VYM does not have any exposure to REITs, you could use it in combination with a REIT fund to gain exposure and better replicate the overall market.” I agree with this author’s assessment and suggestion. (LINK) That is why I invest in stocks that fit my desired outcomes.

Full Disclosure

Cindie and I own 1,975 shares of VYM as a long-term investment.